By Deborah Goonan, Independent American Communities
Oh, this report is definitely blog-worthy. Abby Gallun of Crain’s Chicago Business reports on condo conversions and de-conversions in the Chicago market.
From apartments to condos—and back again?
By Alby Gallun
Of course, termination and de-conversion – a process of turning condos back into standard rental apartments – has been going on in states across the US for decades. I have featured de-conversion activities that have taken place in Florida since 2007.
The Association Governed Residential Community (HOA) industry has done their best to spin condo termination as a way to save owners substantial expense involved in bringing old, decaying structures back up to current building standards. To listen to real estate investment firms and their political supporters, you would think that developers were some sort of saviors, ready to pay a fair price to bail out condo owners.
Time for a reality check
Except that in most cases, association members/owners did not make a conscious choice to seek buyout offers. No, in most of those cases, opportunistic investors (perhaps affiliates of the original developer) snapped up unsold units for pennies on the dollar. Then they took control of the board and forced a termination at great loss to the 10-20% of condo owners that objected.
In Florida, statute allows for 80% of voting interests to force a termination. But the statute also says that the governing documents can set a lower (or higher) requirement. In Illinois, 75% is the benchmark for condo termination.
If you happen to be holding the minority of voting interests, you are simply out of luck. And there’s no guarantee you’ll be paid enough money for your condo to cover the cost of your original purchase, let alone realize a profit on the deal.
Developers are looking for bargains. They are not playing Santa Claus, handing out sacks of cash for condos. You can literally lose your home AND your life savings all in one fell swoop.
Perhaps your money is better off in the stock market, volatile as it is.
Why Do I keep bringing these cases to your attention? My intent is to get readers to see patterns and trends, and recognize them for what they are – legal robbery and industry investors taking advantage of opportunities without any regard for the misery they inflict upon others.
The bigger picture is even more bleak
Notice, of course, that multifamily buildings and projects in the worst condition or poor locations have absolutely no hope of a buy out. (At least not without substantial tax credits and future rent subsidies, funded by taxpayers.)
In fact, cities and counties will take years to condemn places that ought to be taken down with a wrecking ball. I have featured plenty of those horror stories.
Of course, if the local government were to condemn unfit housing, then they would have to help find housing for displaced residents. In other words, they’d have to serve the public interest. Isn’t that what government is for?
Profit-seeking housing developers won’t be of much help. And there just aren’t enough charitable non-profit organizations to fill housing needs, particularly without public support.
So, why do our housing policy makers keep issuing permits and other incentives to build even more condominiums, and to change use of property from apartments to condos and back to apartments, depending upon the whims of the real estate market?
How can we solve and prevent this chaos?
I’ve floated the following suggestion before, but I wonder what my readers, especially some of the attorneys, think about this one:
Let’s decide at the predevelopment stage exactly WHAT we want a multifamily building or project to be, and then stick to that.
Decide before the permits are issued — are we going to build a multifamily structure strictly for owner-occupants? (With limited rights to lease your unit in times of hardship.)
Or are we going to build something strictly for investors who will rent out units short-terms using Air BnB, VRBO, etc.? Maybe we can build something that provides short-term corporate rentals only.
This “exclusive use” model is already in existence for student housing on university campuses.
Or are we simply going to build a traditional apartment complex that rents to tenants seeking primary residence for 6 months or longer?
DECIDE and stick to it! Stop creating a housing model that pits investor-owners against owner-occupants. Stop the revolving door conversion/de-conversion process.
Run the short-term occupancy, investor-owned housing complexes as BUSINESSES run by paid professionals. Let the investors be “silent investors” that get a prospectus prior to purchasing one or more units.
Return governance standards of the residential communities (whether homeowners or tenants) back to the Democratic Republic model!
It’s not complicated. Let’s use some common sense.
The key to a Democratic Republic – give each person a vote that actually counts
I am convinced that tying the voting interests to the PROPERTY owned (instead of one person, one vote) is THE primary reason that Associations, especially condo associations, are prone to attracting investors buying multiple units.
The condo game all about buying the votes that come along with those units for the ultimate purpose of taking control of the association.
Outside of the homeowner or condo association, one cannot buy control of an entire unit of government by purchasing multiple properties.
Think about it.